2004/07 Research & Review

Fiscal Issues and Public Awareness

Fellow, RIETI


Until now, fiscal issues have mostly been discussed as something for the government to decide, presiding as it does over politics and the administration of national affairs. Of course, even now, the specialist role of the government in relation to fiscal matters and the importance of that role remain. However, in addition to this, the support and understanding of the public, taxpayers and voters in other words, have come to occupy an important position in the fiscal reforms of recent years. For example, as seen in the pension reform and tax increase issues, Japan is currently in a period of unavoidable reform, with many citizens facing possible benefit reductions and an increased tax burden. Given this, the fiscal awareness of the electorate will surely become the key to understanding possible directions for reform.

That being said, it is difficult for politicians to propose to the public the necessary fiscal reforms, increased taxes, and benefit reductions. Politicians, who must usually be chosen in elections, can hardly avoid making electoral success the determining factor in policy decision-making. With respect to the issue of reconstructing the massively indebted national finances, even though we can predict that if taxes are not increased it will force large cuts in expenditure at some point in the future, there seems to be no end to the number of politicians who put the investigation of long-term, supra-generational policy on the shelf and are moved solely by immediate needs and the pursuit of profit. That is because they have to win elections, and elections are where the people's awareness of fiscal reform is reflected. Another reflection of public awareness is the existence of the dilemma that it is difficult for those politicians who are capable of advocating steady reform with a long-term perspective to gain public understanding.

The Existence of Specialists

It is not easy for the general public to raise awareness of its own government's fiscal health and long-term outlook. Public awareness will be much less likely affected, even with the prospect of bold implementation of reform, if the government's decision-making processes are not transparent. Moreover, if the whereabouts of responsibility are vague, political and administrative leaders will also be unable to give full rein to their leadership. Under such circumstances, even supposing for a moment that Japan achieves its aim of reducing the fiscal deficit, it is possible that the public will not be in joint ownership with the government of the knowledge required to make it happen.

The realities of Japanese decision-making are such that it is common for most of the policy adjustment and harmonization of differing interests to have been completed before deliberations begin in the Diet, the legislative branch of government. As far as the public is concerned, it has become an extremely opaque process. Interdepartmental decisions are left to closed political discussion and intra-governmental negotiation so the function of control of the total picture and the whereabouts of responsibility are not clarified. It is not only a process invisible to the general public. As compartments exist between departments too, it is difficult even for the central players on the ground to make adjustments to the overall situation. Add to this the tier of vested interests and interest groups, and the stalemate between agreement in principle and opposition to particulars continues. Within such a framework, it is difficult to establish incentives to disclose fiscal information that would reveal the true state of affairs to many people and encourage the heightening of public awareness of fiscal issues. Further, participants in fiscal processes subsumed in bureaupluralism give too much priority to the necessity and logic of their own individual expenditure concerns and are deprived even of their function as the axis of government, the investigation and adjustment of the total picture of finance.

To heighten fiscal awareness among the general public in such an environment, not only the government and the general public themselves but also the activities of specialists who can bring both sides together are fundamental. Specialist knowledge does not consist solely of information that would be obtainable simply with some effort on the part of individual members of the public, so it is necessary for people equipped with the knowledge and technology as fiscal specialists to explore ways of making various contributions. There are many examples of specialists collaborating with and contributing to the work of government organizations in Japan, but there are many ways to reach the public while utilizing one's ability as a specialist, such as encouraging citizens directly to take part in NPO activities and so forth, public debate in the mass media, research and public presentations at think tanks, diffusion of analysis and research results from studies carried out in specialist governmental institutions, and activities to enlighten the public at election time.

To put it another way, the respective actors can be largely divided into the three groups of the government, the public, and the specialists who join them together, and it can be supposed that if all play their part satisfactorily, it will heighten public awareness of fiscal reform.

Mutual Distrust

It is the public who bear the expense of managing the state. However, it is said that the Japanese tend to be unaware of how much tax they pay to fund the activities of the government. There is a view that awareness of the expense burden remains low because the number of people subject to straight income tax is extremely limited. According to the 2002 statistics of the Tax Research Commission, the number of citizens paying income tax, excluding the unemployed, is about three-quarters of the number actually working (about 47.73 million out of about 64.46 million) and the remaining roughly one-quarter of workers (about 15.11 million) do not pay tax. Furthermore, a breakdown of Japan's taxpayers shows that most are salary earners (43.46 million) and the number of self-assessed taxpayers is no more than a paltry 7.27 million. In other words, the majority of taxpayers are of the tier that has its tax deducted from income at source, and one in four workers pay no tax. This can be attributed to the minimum level of taxable income being set high, and the many types of tax deductions and allowances that narrow the taxation base. It is not easy to stir awareness that people are taxpayers without understanding the extent to which they bear the expenses of managing the nation. Furthermore, the existence of a gap between opaque fiscal decision-making process and public knowledge invites deep mutual distrust.

There is not a little awareness that the government would like to avoid mob rule and also that the public is not satisfied with the government's management of the state. Public distrust of the government did not used to be so pronounced in Japan but in recent times there have been many strict eyes turned towards various government policy initiatives including the pension issue, public highway corporation reform, and the distribution of the expense burden between the central and local governments. In particular, the nebulous distrust of the electorate will not disappear with the current state of affairs in Japan whereby important decision-making is coordinated prior to deliberation in the Diet. According to an Awareness Survey carried out by the Ministry of Finance in 2002, 57% of the public knew of the current condition of the fiscal deficit, while 36% answered that they knew about it to a certain extent. These figures leave the answer that 6% of people did not know very much about the deficit and 1% knew absolutely nothing. And, with respect to the question of whether or not they felt a sense of unease over the future of the nation's fiscal condition, a total of 96% of respondents said that they did, with 79% of those feeling it strongly and 19% a little. Further, in response to the question of whether they thought that current public works projects were useful, the number of those who said yes was limited to 15% while a dominant number of people answered that they helped some people (76%) or were of no use at all (9%).

The question of how to develop the public's burgeoning awareness of the issues into deeper understanding and connect that to voting behavior is the key to deciding the direction of fiscal reform. If those on the political and administrative side and specialists refrain from presenting information and policies based on distrust of the public or a sense of caution over mob rule, then fiscal reform will probably not be established out of public choice.

Public Choice

It is not easy to discern the public's choices when there are a wide variety of issues at hand, as is the case at present. In the representative democratic system, lawmakers take the part of establishing focal points reflecting the consciousness of the public, but human beings are not usually perfect. It is clear from looking at past experiences how easily the government and public make mistakes, even in matters of national finance. Easily understood guidance from leaders on the fiscal scene and fiscal specialists of the tradeoffs made in the fiscal decision-making process is valuable material for the public as it makes its decisions. However, from a practical standpoint it sometimes happens that even if specialists point out tradeoffs they are not reflected fully in fiscal decisions and are struck out of the political process. It is vital that these sorts of mistakes are not repeated so it is necessary for specialists as well to ensure the credibility of analyses and their capability to explain so that they are not eliminated from either the disclosure of information or the political process.

Fiscal information is a tool for presenting tradeoffs in figures and searching for focal points. It indicates in the form of numbers such things as the aims of the state, ideals, or economic development, and is useful for managing various administrative activities and responding to the demands of the electorate. Further, it is also a means to evaluate past government activities and make plans for the future. Accordingly, we must not forget the viewpoint that the government is to fulfill its responsibility to explain fiscal reform and improve its function of allowing the people to decide. In truth, policy planning is an endless series of mistakes and successes. Consequently, policy research is necessary to verify what succeeded in the past and what went wrong to guide us towards more efficient, more successful policies in order to build on progress. However, it is necessary to acknowledge that the final evaluation in state fiscal matters is not something handed down on a piece of paper by an administrative bureaucrat but by the electorate, which should be the main actor in making value judgements.

Of course, given limited resources it is not possible in fiscal policy to provide administrative services that will satisfy all members of the public. It is necessary that the public understands and consents to the relationship between cost and the benefits that can be enjoyed but it is difficult to gain the consent of all concerned. Given this factor, it is important to measure the clarification of political responsibility under which the policy was proposed to give legitimacy to the process. Procedural legitimacy can induce consent for difficult proposals from the public. Also, the clarification of the whereabouts of responsibility provides motivation for leaders on the fiscal scene to learn from mistakes and elaborate policies completely. By clarifying costs and responsibility it becomes easier to evaluate truly capable policy decision-makers, so probably more of these kinds of people will enter the world of politics. Democratic politics grows through repeated trial and error and asks continually for the public's value judgements. If politics makes those value judgements its mission, fiscal policy would be the fitting tool to indicate them.

Change in political leadership is fundamental in the process of trial and error that asks for the public's value judgements. There is much bureaupluralism in the drafting of budgets and as time passes, inseparable emotional ties and a sense of common bonding among politicians, bureaucrats, and interest groups develop. Cutting these off is the primary role of changes in political administration. It is the means of realizing policy change and personnel renewal. If stable political authority is guaranteed, the pressure and motivation to prevent corruption disappears in reality. Also, if competition disappears from politics, the public is deprived of valuable opportunities to learn.

Mob Rule and the Public

In the meantime, a sense of caution towards mob rule pervades the corridors of administrative and political power. This view has it that there is no way that the process of sending information out to the public to obtain its judgement will lead to efficient, high quality policy proposals, and there is a danger that the state will rather take a weaving course. If the general public takes the easy option and can only judge selfishly, then it would be wise to avoid getting tangled up with it in the first place. So, is there really zero chance of the general public being able to make long-term judgement to the benefit of the public at large, assuming a basis on which judgement is consigned to it?

The members of the public are the taxpayers who bear the expenses of managing the state and are its creditors. In spite of this, since the units for issues of state are extremely large, it certainly cannot be denied that there is a tendency to pursue self-interest rather than take advantage of economic notions more mundanely connected to household budgeting. However, since there are many, many voters, as indicated by the associated term "the masses," the conflicts of interest of each and every voter are not as clear as the larger confrontations in the political and administrative landscape. And it can be thought that more than anything, people will exercise a sense of balance similar to the management of their family's household budget by obtaining good quality information, and keep to themselves the potential to choose to postpone immediate profits. According to Hope (2003), human beings have moral emotions so feel great pleasure upon seeing something good or acting virtuously. When humans see vice or act unscrupulously, they feel resentment and their own emotions have been undermined. All of their moral emotions lean heavily on the acknowledgement of good conduct. When people feel great pleasure on account of good conduct, they are cognizant of justice and benevolence. There are many value judgements concerning justice and equity in popular philosophy and wisdom. Apart from interpretations of self-interested human behavior, there are times when moral benefit is obtained by showing morality so it cannot be denied that the potential for civic virtue exists in public awareness of fiscal matters. It cannot be said that in circumstances where fiscal information is presented adequately for understanding, the advocacy and pursuit of self-interest alone will be the grounds for determining value. There is a possibility with respect to large government expenditures such as welfare for the elderly, pensions and education, that the potential exists for a mentality on the part of members of the public that want to share the fiscal burden as virtuous citizens, not just because it is a duty.

Underpinning any such exercise by citizens of civic virtue and a sense of justice will be the existence of trustworthy information and analysis that is as accurate as possible. This is something that must be demanded by the public themselves but the creation of an environment that will see accurate knowledge circulate to some extent is an issue for those on the administrative side to deal with. Also, the supply of correct information to the public and education is a social contribution that specialists blessed with knowledge should demonstrate and will be indispensable to the raising of public awareness of fiscal reform.


The public never exists solely to enjoy benefits. For Japan, which is plunging into becoming an aging society while continuing to suffer a massive fiscal deficit, the question of how to acknowledge that fact will determine the development of future reform. Of course, just heightening public awareness will not promote fiscal reform and nor will it straighten out the system or rules of the political and administrative landscapes. As long as politicians and their staff are not specifically made to do anything, fiscal reform is out of the question. However, if policymakers and fiscal specialists have a mentality that underestimates public awareness, or avoids providing information to the public so as to avoid mob rule, it will be extremely difficult to promote such fiscal reform that Japan will confront in the future. On the contrary, policymakers should consider the fact that just by fostering high-quality awareness among the public, they would find themselves able to garner high-powered, widespread support. This is a long-winded way of putting it but raising public awareness is connected with the ability to evaluate deserving politicians, and is the basis on which deserving politicians will be raised.

For that reason too, the role fulfilled by such things as the analysis and direct commentary of specialists with reliable experience and past showings is large and when that expertise wins credibility it can begin to exercise an effect. It can probably be said that fiscal reform will be a test of the strength of Japanese society as a whole, where its knowledge is shared as described here among the government, the public, and specialists in the field.

(This article is a summary by RIETI Fellow Mieko Nakabayashi of her part in the Fiscal Reform Research Project begun in December 2002 at RIETI. The content and opinions herein are those of the author and are not to be taken as indicating the official position of RIETI.)

>> Original text in Japanese

  • Aoki, Masahiko (2001), Toward a Comparative Institutional Analysis, MIT Press.
  • Ministry of Finance (2002), Results of the Heisei 14 "Finance Awareness Survey Questionnaire."
  • Tax Research Commission (2002), 25th General Meeting (5th March 2002) Data Synopsis.
  • Hope, Vincent (2003), "Scottish Contributions to Studies in Morality," chapter 3 in Masao Kitazume, Tsukasa Uchida (eds), Making Life Public and the Revitalization of Regional Society

October 6, 2004

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